Taiwan airline deal breaks Chinese wall

Economic woes mean Taipei must free up investment in China

A Taiwanese airline is planning to buy 25% of a mainland peer's cargo arm based in Shanghai, in a deal which heralds concrete moves to weaken the wall separating the two economies.

China Airlines - the main carrier in Taiwan - is due to sign a deal with China Eastern, majority owner of China Cargo, on Wednesday.

No matter how much money flows from China, we can say that the stalled cross-strait relationship is taking a step forward

Chang Yih-chuan, China Union Real Estate Appraisal

Should the governments of Taiwan and China - which still sees the former as a breakaway province - approve the deal, China Airlines will gain a foothold in the mainland air traffic market, even though direct flights between the two jurisdictions have been banned since China's civil war ended in 1949.

The deal, for cash, should also see Taiwanese executives take seats on China Cargo's board.

The plan was first mooted last year, but was shelved because of the frosty relationship between Taipei and Beijing.

There are further signs that this relationship is thawing, with news that Taiwan's cabinet is considering allowing Chinese nationals to buy property on the island.

Bridging the Strait

The announcement comes less than a month after a key government advisory committee in Taiwan advised lifting a raft of restrictions on trading across the Taiwan Strait.

Its proposals suggest lifting the $50m limit for a single investment and ending restrictions that force Taiwanese companies to route funds through another territory, usually Hong Kong.

And direct transport, commercial and postal links could be restored for the first time since 1949.

If Chinese nationals are allowed to buy Taiwanese land - as has been suggested - this could boost property prices there after a five-year lull.

"The approval [of the proposal] was in response to the economic advisory panel, a global trend of economic liberalisation and with an eye towards improving the country's utilisation of land resources," the cabinet said in a statement.

Chinese manipulation?

Parliament still has to approve the proposal, which could prove controversial.

Mainlanders are banned from buying land in Taiwan - not least because of the risk that such a fundamental asset would then be open to manipulation by the mainland Chinese government.

According to Chang Yih-chuan, president at Taiwan's China Union Real Estate Appraisal Co, the psychological effect of the proposal is far more important than the financial implications.

"No matter how much money flows from China, we can say that the stalled cross-strait relationship is taking a step forward."